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In my last article I started to answer some of the key questions people ask when looking at franchising as an investment opportunity. This week I will answer some more commonly asked questions.
How do I find the right franchise for me?
If you’re planning on investing in a franchise, you need to be sure it’s the right one for you - the only way to find out, is to ask some probing questions. Lloyds Bank has produced a free guide of 30 key questions you should be asking to help you make an informed decision about the investment. This guide can be downloaded, request from firstname.lastname@example.org
Common sense will also help you to decide whether the franchise you are considering will prove right for you. Don’t jump into the first franchise opportunity you are attracted to - take a step back, look at your options objectively and, above all, don’t be rushed into a final decision.
What should I do once I’ve found a franchise I’m interested in?
As part of your research, speak to as many existing franchisees as possible. It is likely that the franchisor will want to manage that process - and that is fine - but don’t let them dictate who you speak to. Try to speak to a wide selection of franchisees, including some of the best and worst performers. You may also wish to speak to someone who has recently established their business - they will have gone through the same process as you, so their experience will be invaluable. It’s also worth speaking to more established franchisees who have gone past the start-up stage. They will be able to highlight some of the pitfalls to avoid and where you can expect your own business to be in a few years time.
Banks with specialist franchise departments, such as Lloyds, are a good place to get independent and impartial guidance about your franchise options.
Who should I speak to if I need to raise finance?
It’s always best to approach a bank’s franchise department in the first instance. The level of finance available will depend upon the strength of the franchise system, as well as your business plan. Typically, for well-established, proven franchise brands a bank will lend up to 70 per cent of the total set-up costs, including working capital. For newer, less proven franchise systems the amount of finance available may be lower.
If you are looking to obtain financial backing in excess of £25,000 then the bank is likely to require security to cover the loan, which is most commonly a legal charge over a residential property with sufficient equity. Don’t be put off if you haven’t got any security to offer the bank. The Government backed Enterprise Finance Guarantee scheme may be available for those who have a strong business proposal, but who lack security that the banks usually require. Make sure you speak to the bank’s franchise unit to discuss whether you qualify for finance under this scheme.
The bank will require a business plan to open an account and consider your financial requirements. Any lender will want you to demonstrate that you understand your chosen market and that you will be able to meet the financial commitment you are taking on.